When the parties to a contract stipulated the sum to be paid by way of damages in the event of a breach, the sum stipulated might be classified as liquidated damages or a penalty but not both. The essence of a penalty was a payment of money stipulated as in terrorem of the offending party, but the essence of liquidated damages is a genuine covenanted pre­ – estimate of damage. However, that issue was a question of construction to be determined upon the facts and inherent circumstances of each particular contract as at the time of making the contract. It would only be allowed where it was found to be liquidated damages and not a penalty. In the instant case, the payment of 50 per cent of the deposit stipulated in the contract was not a genuine pre-estimate, at the time the contract was made, of the loss the plaintiff would incur if the defendant broke the contract. It was an extravagant and unreasonable amount in comparison with the [pg 726] greatest damage or loss that at the time of the contract the parties could ; genuinely estimate the plaintiff would suffer in the event of a breach by the I defendant. Since it was clear that it was in the nature of a threat held over the defendant in terrorem-as a security to the plaintiff that the defendant would perform the contract-the sum stipulated was a penalty. Accord­ingly, the plaintiff could not claim it. Dictum of Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [19 I 5] AC 79 at 86-87 applied.